There are different scenarios where you might be interested in buying a property at an auction. It could be that you want a fixer-upper as your new home, and you want a good deal. You might also be considering an investment. For example, you can buy a property at auction and flip it or rehab it and rent it out.
Regardless of what you’re looking for, real estate auctions can be exciting and can offer great deals, but they can also be stressful and intimidating.
Going to a real estate auction and ultimately bidding on a property is not the right option for everyone. You need to have cash on hand in most cases or be willing to use a high-interest and risky loan to make a purchase.
If you’re thinking about going to an auction, the following are some of the things you can expect as you prepare.
What Properties Are Sold At Auctions?
Any type of property can technically be sold at an auction, but most commonly, you’ll see foreclosures. Usually, a lender-appointed trustee will do a foreclosure sale in an attempt to get the balance of the loan after a borrower defaulted. There are both in-person and online auctions.
Each state has its own set of rules that guide how real estate auctions have to work.
If you’re going to a live foreclosure auction, they’re open to the public, but you’ll need to register ahead of time. You’ll probably have to show you have the funds to purchase the property in full if you register.
Finding an Auction
There are sites like Auction.com that will list foreclosure auctions going on near you. You can also find data on foreclosures and auctions through your local county website.
Another option is to work with a real estate agent or broker who can find foreclosures and auctions for you.
Before you go to an auction, you should do your research. You need to know about the transaction details before you ever show up to an auction. If you’re new to auctions, it could be worthwhile to talk to an attorney or agent beforehand.
Some of the things you need to ensure you know going into an auction include the property’s estimated resale value, what’s owed on the mortgage, and whether there are currently liens against the property.
If your bid wins at a real estate auction, you are responsible for paying off loans against the property.
If you have an idea of a property you’re interested in, before the auction, you should have a professional, which can be a real estate attorney or a title company, run a title search.
As part of your research, you should also drive past the property. Know that you can’t disturb the person who lives there or trespass, however.
You’re Buying As-Is
When you buy a home in the foreclosure process, you’re bidding on the home as-is. You’re not going to know what the condition of the home is until your bid wins and you take possession. This is one of the many risks of a real estate auction. You’re going to have no idea how much work is truly needed and what that work is going to cost.
Before an auction, you’ll need to have your money in order. Typically at a foreclosure auction, you can pay with cash, a cashier’s check or a bank money order. In almost every state you will have to pay in full after the auction. Some states will let you pay a percentage of the purchase price at the auction itself and then you might have 30 days for example to pay the rest.
If you’re going to a county foreclosure auction, you’ll have to pay an advance deposit, and that amount ranges from 5 to 10% of the final bid amount.
Attending the Auction
If you’ve done your due diligence and the day of the auction has arrived, you want to show up at least an hour early. This gives you a chance to get an auction bidder card. Then, again, if you win, your payment is probably due either right away or maybe the next business day. After you pay, you will fill out a certificate of sale and a deed upon sale. You’ll also get an IRS Form 8300 to complete. Some of the specifics vary depending on your state.
You get the certificate of sale immediately, but your certificate of title might not come for 10 days.
Finally, the owner may be able to object to the sale during that time, and then they would pay the amount owed in full so they could keep ownership of the property. Because of this, don’t start working on the property until you get your certificate of title.